President Vladimir Putin has refused to meet representatives of Russia's powerful business lobby to discuss the arrest on Saturday of the country's richest oil executive.

Mr Putin broke his silence over the arrest of Mikhail Khodorkovsky, chief executive of oil giant Yukos, after a lobby of the country's business leaders publicly called for a meeting with the president.

Mr Khodorkovsky's arrest on fraud charges triggered a heavy sell-off of Russian stocks in early trading amid concerns that powerful independent businesses could be targeted by the Kremlin in the run-up to parliamentary elections in December.

Mr Putin is seeking to distance himself from legal moves against Yukos, presenting it as a judicial anti-corruption drive not a political vendetta.

"There will be no meetings, no horse-trading with regard to the law-enforcement bodies, provided they acted within the framework of Russian legislation." Mr Putin said.

But many observers see Mr Khodorkovsky's incarceration as a Kremlin-driven campaign against a man whose wealth and high international profile make him a potential rival.

Mr Putin faces re-election in March 2004.

Targets

Mr Khodorkovsky, by some measures Russia's richest man, is a prominent "oligarch" - one of the small circle of businessmen who got rich in murky privatisation deals under Mr Putin's predecessor Boris Yeltsin.

Since Mr Putin took office in 1999, prosecutors have targeted some of the figures closest to the Yeltsin administration.

But a mass purge of the oligarch generation could send panic through Russia's business community in which many fortunes depend on murky transactions in the lawless environment of the Yeltsin years.

"It will be in the Kremlin's interest to attempt to isolate the campaign to Khodorkovsky. It will want to separate the man from Yukos, and, more widely, business from politics," say Renaissance Capital, a Moscow based investment bank.

Trading on one of the leading Russian stock indices, the MICEX, was suspended for one hour from 8:30 GMT after a tumble of more than 13%, dragged down by Yukos.

The benchmark RTS share index closed down 10%, with Yukos shares on the RTS ending the day down 15.4%.

Meanwhile, the rouble also fell in early trading on foreign currency markets as banks hurried to buy dollars - but stabilised after the Russian central bank spent $500m propping up the currency.

Many of Russia's new billionaires shifted much of their new wealth offshore, a trend which might resume if they fear a political purge.

The largest Yukos shareholder not currently facing criminal charges is Roman Abramovich, the tycoon resident in London who recently bought the UK's Chelsea Football Club. Mr Abramovich has steered clear of public life back in Russia.